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Reversal of DTA/DTL

Dhanraj (CA Final) (561 Points)

05 December 2009

Hi friends

Could anyone of you tell what is the conceptual reason behind reversal of DTA and DTL???

Thanks in advance

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4 Replies

Shashi Bhushan (Learner, Jalandhar) (996 Points)
Replied 06 December 2009

when we will receive some benefit in future then we create deferred tax asset. and this asset we show in balance sheet.

And when we receive that benefit in next accounting year then we write off the asset as it is received. this process is called reversal of DTA.

So the concept is we have to reverse because DTA/DTL is no more our asset/liability.

You can seek further clarification if still any confusion you have in mind.

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Ansari (ca final) (444 Points)
Replied 06 December 2009

Originally posted by :Shashi Bhushan
"	when we will receive some benefit in future then we create deferred tax asset. and this asset we show in balance sheet. And when we receive that benefit in next accounting year then we write off the asset as it is received. this process is called reversal of DTA. So the concept is we have to reverse because DTA/DTL is no more our asset/liability. You can seek further clarification if still any confusion you have in mind.	"

CA Rahul Jain (CA) (1162 Points)
Replied 07 December 2009

Creation of DTA/DTL is required as per AS-22.

When the book profit of the company is more/less than the taxable income, then the additional/Less tax paid on this difference is trf to DTA/DTL respectively.

We have to pay the tax on the taxable income as computed under Income Tax Act'1961. But the book profit of the company always differs from the taxable income because of some addition or disallowance under IT Act. The tax on the difference between Book Profit and taxable income is trf to DTA/DTL.

Reversal of DTA/DTL: DTA and DTL both cannot stand together in balance sheet. Either DTA or DTL would reflect in final accounts. If there is DTA in one year and if in the next year DTL is to be created then first DTA would be adjusted and then DTL would be created.

Shashi Bhushan (Learner, Jalandhar) (996 Points)
Replied 07 December 2009

Originally posted by :Rahul Jain
"	Creation of DTA/DTL is required as per AS-22. When the book profit of the company is more/less than the taxable income, then the additional/Less tax paid on this difference is trf to DTA/DTL respectively. We have to pay the tax on the taxable income as computed under Income Tax Act'1961. But the book profit of the company always differs from the taxable income because of some addition or disallowance under IT Act. The tax on the difference between Book Profit and taxable income is trf to DTA/DTL. Reversal of DTA/DTL: DTA and DTL both cannot stand together in balance sheet. Either DTA or DTL would reflect in final accounts. If there is DTA in one year and if in the next year DTL is to be created then first DTA would be adjusted and then DTL would be created.	"

adjustment of DTA/DTL is not mandatory. its our discretion that we can adjust DTA and DTL and show net balance if both of them are arised due to same governing law(eg. income tax)